Tezos Founders Face Second Class Action Lawsuit Over $232 Million ICO

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The founders of blockchain startup Tezos have been hit with a second class action lawsuit related to the project’s initial coin offering (ICO).

Filed by legal firm Silver Miller in the U.S. District Court in Florida, the suit alleges that Tezos founders Kathleen and Arthur Breitman — along with their company Dynamic Ledger Solutions and the independently-operated Tezos Foundation — illegally sold unregistered securities to U.S. residents during their July ICO, which briefly held the record for the most funds raised in a single token sale. The project raised $232 million during the ICO and the suit estimates that those assets have appreciated to more than $600 million during the intervening months.

“Notwithstanding Defendants’ attempts to avoid governmental and private scrutiny, it is clear that the financiers were indeed profit-seeking investors in a security and that Defendants promoted and conducted an unregistered offering of securities, not a charitable fundraiser,” the suit reads.

This is the second class action lawsuit levied against Tezos since the emergence of an explosive investigative report that chronicled infighting between the Breitmans — who founded Dynamic Ledger Solutions, the company that controls the rights to all of Tezos’ intellectual property — and Johann Gevers, the head of the independently-operated Tezos Foundation, the organization that oversaw the Tezos ICO and maintains control of the those funds. This infighting has caused the project to miss stated release targets, and some contributors to the ICO have come to regret their investments.

“We believe those who are raising money in the ICO-space without following the applicable laws, or who are attempting to evade those laws entirely, need to be held accountable,” David Silver, founding partner of Silver Miller, told CCN in an email.

Noting that U.S. regulators have yet to provide the industry with a clear framework for conducting compliant ICOs, Silver encourages investors to take extra caution to research token sales thoroughly before deciding to contribute to a project.

“Because there are no uniform rules and nobody to hold accountable in the current ICO market, ICO investors are following the shaky strategy of “blind gut and luck” investing. Their investments are more about faith than about facts. While it’s good to have faith in life, it’s even better to have facts when investing,” he concluded.

Josiah is an assistant editor at CCN. A former ancient and medieval literature teacher, he has been reporting on cryptocurrency since 2014. He lives in rural North Carolina with his wife and children. He holds investment positions in bitcoin and other large-cap cryptocurrencies. Follow him on Twitter @Y3llowb1ackbird or email him directly at josiah.wilmoth(at)ccn.com.